Despite a booming economy and low unemployment rate, many Americans struggle to pay their bills on time. In fact, a record 7 million are 90 days or more behind on car payments, suggesting that not all Americans are bouncing back in the strong labor market.
Out of all the bills people pay, most tend to prioritize their car payment because it is critical to have a vehicle to get back and forth to work. However, when people do get behind on a car payment anywhere from one day to a few months, they run the risk of having their car repossessed, making it next to impossible to fulfill employment responsibilities or care for their families.
Of the millions of people struggling to pay their car loans, many are under 30 and may also be trying to tackle student loans simultaneously or have families that they are trying to provide for. Many who default on car loans are subprime borrowers with lower credit scores to begin with and likely have higher interests rates – sometimes as high as 20 percent – resulting in higher payments that are hard to sustain.
When borrowers get behind on auto loan payments, many wonder if bankruptcy protection will prevent repossession until they can get caught up. Fortunately, bankruptcy can, in fact, help in three ways:
- Chapter 13 bankruptcy can allow a debtor to spread payments for secured (and unsecured debts such as credit cards) over a 3 to 5 year period, eliminating the possibility of car repossession during the repayment period. Some debt that is not paid during the repayment plan many even be discharged in the end.
- Depending on the circumstances of your case, you may also be eligible for an auto loan cram-down which reduces your debt liability to the current retail value of the car.
- Chapter 7 bankruptcy may also be an option. Chapter 7 can relieve a debtor of unsecured debt, such as credit cards and medical bills, so that he or she can utilize their earnings to target the auto loan.
If you are in a difficult financial situation and are unable to make your car payment, don’t wait. It is worthwhile to discuss your situation with a bankruptcy lawyer who can provide you with strategies not only to hold on to your vehicle, but also tackle other debt. Contact the Peoria Illinois bankruptcy law offices of Charles E. Covey for help today at 309-674-8125.
